Macroeconomics Final Exam

Suppose that the money supply increases. In the short run, this increases prices according to

both the short-run Phillips curve and the aggregate demand and aggregate supply model.

The initial impact of an increase in an investment tax credit is to shift aggregate

demand right.

Samuelson and Solow reasoned that when aggregate demand was high, unemployment was

low, so there was upward pressure on wages and prices.

A bank has a 10 percent reserve requirement, $36,000 in loans, and has loaned out all it can, given the reserve requirement.

It has $40,000 in deposits.

You pay for cheese and bread from the deli with currency. Which function of money does this best illustrate?

Medium of exchange

In which case can we be sure aggregate demand shifts left overall?

People want to save more for retirement and the Fed increases the money supply.

The natural rate of unemployment is the

amount of unemployment that the economy normally experiences.

In 2009, Congress and President Obama approved tax cuts and increased government spending. According to the short-run Phillips curve these policies should have

reduced unemployment and raised inflation.

If the government raises government expenditures, then in the short run prices

rise and unemployment falls.

Aggregate demand includes

the quantity of goods and services the government, households, firms, and customers abroad want to buy.

When monetary and fiscal policymakers expand aggregate demand, which of the following costs to the economy is incurred in the short run?

The price level increases.

Which of the following is not included in either M1 or M2?

U.S. Treasury bills

An increase in household saving causes consumption to

fall and aggregate demand to decrease.

If policymakers decrease aggregate demand, then in the short run the price level

falls and unemployment rises.

In recent years, the Federal Reserve has conducted policy by setting a target for the

federal funds rate

Net exports of a country are the value of

goods and services exported minus the value of goods and services imported.

According to the misperceptions theory of short-run aggregate supply, if a firm thought that inflation was going to be 5 percent and actual inflation was 6 percent, then the firm would believe that the relative price of what it produce had

increased, so it would decrease production.

When the Fed buys bonds the supply of money

increases and so aggregate demand shifts right

The sticky-wage theory of the short-run aggregate supply curve says that when the price level rises more than expected, production is

more profitable and employment and output rises.

According to the Phillips curve, unemployment and inflation are positively related in

neither the long run nor the short run.

In the long run, policy that changes aggregate demand changes

only the price level.

Other things the same, if technology increases, then in the long run

output is higher and prices are lower.

If a country has Y > C + I + G, then it has

positive net capital outflow and positive net exports.

If policymakers expand aggregate demand, then in the long run

prices will be higher and unemployment will be unchanged.

If the central bank increases the money supply, in the short run, output

rises so unemployment falls.

The wealth effect, interest-rate effect, and exchange-rate effect are all explanations for

shifts in the aggregate-demand curve.

Which of the following groups meets to discuss changes in the economy and determine monetary policy?

the Federal Open Market Committee

An increase in the expected price level shifts

the short-run aggregate supply curve to the left but does not affect the long-run aggregate supply curve.

From 2001 to 2005 there was a dramatic rise in the value of houses. If this rise made homeowners feel wealthier, then it would have shifted aggregate

demand right.

The unemployment rate is computed as the number of unemployed

divided by the labor force, all times 100.

Fiscal policy affects the economy

in both the short and long run.

A country purchases $3 billion of foreign-produced goods and services and sells $2 billion of domestically produced goods and services to foreign countries. It has exports of

$2 billion and a trade deficit of $1 billion.

Suppose that some country had an adult population of about 46 million, a labor-force participation rate of 75 percent, and an unemployment rate of 8 percent. How many people were unemployed?

2.76 million

a bank has $8,000 in deposits and $6,000 in loans. It has loaned out all it can, given the reserve requirement. It follows that the reserve requirement is

25 percent.

Which of the following would cause stagflation?

Aggregate demand shifts right

Which of the following would shift the long-run aggregate supply curve right?

An increase in the capital stock, but not an increase in the price level

Which of the following shifts the long-run aggregate supply curve to the left?

An increase in the price of imported natural resources and an increase in trade restrictions

Closely watched indicators such as the inflation rate and unemployment are released each month by the

Bureau of Labor Statistics.

For the U.S. economy, which of the following is the most important reason for the downward slope of the aggregate-demand curve?

The interest-rate effect

The price level rises in the short run if

aggregate demand shifts right or aggregate supply shifts left.

Monetary policy

can be described either in terms of the money supply or in terms of the interest rate.

When the Fed buys government bonds, the reserves of the banking system

decrease, so the money supply decreases.

Shifts in aggregate demand affect the price level in

both the short and long run

If the natural rate of unemployment is 5.2 percent and the actual rate of unemployment is 5.7 percent, then by definition there is

cyclical unemployment amounting to 0.5 percent of the labor force.

According to the Phillips curve, policymakers would reduce inflation but raise unemployment if they

decreased the money supply.

The wealth effect along an aggregate-demand curve stems from the idea that a higher price level

decreases the real value of households' money holdings.

If the money multiplier is 3 and the Fed buys $50,000 worth of bonds, what happens to the money supply

it increases by $150,000.

You saved $500 in currency in your piggy bank to purchase a new laptop. The $500 you kept in your piggy bank illustrates money's function as a _______. The laptop's price is posted as $500. The $500 price illustrates money's function as a _____. You use the $500 to purchase the laptop. This transaction illustrates money's function as a ______.

store of value, unit of account, medium of exchange

Using the liquidity-preference model, when the Federal Reserve decreases the money supply,

the equilibrium interest rate increases.

The labor-force participation rate measures the percentage of the

total adult population that is in the labor force.

The short-run relationship between inflation and unemployment is often called

the Phillips curve.

When Jamie, a U.S. citizen, purchases a wool jacket made in Ireland, the purchase is

the U.S. import and an Irish export.

The short-run Phillips curve shows the combinations of

unemployment and inflation that arise in the short run as aggregate demand shifts the economy along the short-run aggregate supply curve.

if the Fed conducts open-market purchases, the money supply

increases and aggregate demand shifts right.

Net capital outflow

is always equal to net exports